New babus are a good start, need a lot more
With elections in Maharashtra and Haryana out of the way, there is hope the government will get down to some big-ticket reforms. It is in this context that the recent bureaucratic reshuffle, and an impending Cabinet expansion, are being seen. The choice of Rajasthan chief secretary Rajiv Mehrishi as the new economic affairs secretary seems a good one. While the direction was clearly provided by Rajasthan chief minister Vasundhara Raje, there is little doubt Mehrishi did a good job of getting Rajasthan to amend both its labour laws as well as to come up with a less draconian version of the land acquisition law—the former is waiting the President’s assent while the latter is before the Rajasthan assembly. As chief secretary, Mehrishi also oversaw the state’s own Aadhaar-style direct benefits programme, Bhamashah—in other words, given the political cover, Mehrishi is seen as a bureaucrat who can conceive, and implement reforms unlike several of his colleagues whose claim to fame is obstructing change. Appointing Arvind Subramanian as chief economic advisor is another good choice given his solid credentials, though the worry is that he too might be a believer in hiking interest rates even while all the evidence points to the need to cut rates. Other bureaucrats who have performed well, such as Anil Swarup, have also been put in key posts.
While no one doubts the government is working well on various doing-business indicators like labour laws, getting investors back is going to take a lot more, and the government’s track record on this has been quite poor—since bureaucrats eventually function under political direction, it is unlikely that getting in pro-active bureaucrats alone will do the trick unless the political mindset changes. In telecom, where telcos have the money to make big investments, the policy on spectrum remains a complete mess and, as Trai has said, unless it is fixed, the next round of auctions could be ruinous. And at a time when the government was supposed to be reassuring investors that the UPA’s arbitrary policies were a thing of the past, telecom bureaucrats managed to convince the minister to challenge the TDSAT ruling on 3G intra-circle roaming, and convey the impression that nothing had changed—the roaming policy, as FE has pointed out before, was not just illogical and arbitrary, the TDSAT had ripped into this. If finance minister Arun Jaitley challenges the Bombay High Court judgment on Vodafone, and the taxman will try his best to ensure he does, that will further cement the impression that little has changed—in this case too, the ruling has gone against the then government. Petroleum and natural gas is another area where large investments can be expected, but this too needs political direction. With the span of a few years, Cairn has emerged as India’s second-largest oil producer but its request to have its lease extended—on the same terms—has not been acted upon. With diesel not yet decontrolled, large investments in oil retailing remain on paper; and with the natural gas price hike deferred twice already, large investments in this area have been kept on hold—meanwhile, India continues to import natural gas at prices upwards of $11-12 per mmBtu. Putting critical reform decisions on hold due to elections is never a good idea given how often India has elections, but now that two key ones are over, it is time the government showed some serious action.